Commercial Restructuring & Bankruptcy Alert - November 2013

by Reed Smith

In this issue:

- Consequences of the Failure of a Secured Creditor to File a Timely Proof of Claim

- Private Equity Funds Potentially Liable for Portfolio Company’s Unfunded Pension Liability

- Make-Whole Payment Not ‘Unmatured Interest’

- Tax Status of Q-Sub Debtor Not Estate Property; Debtor Has No Standing to Challenge Parent’s Sub-S Revocation

- Don’t Let Excess Insurers Avoid Coverage Based on Settlements or Bankruptcy

- Failure to Execute Plan-Required Documents Very Costly for Subsequent Purchaser

- Creditor Has Two Separate Security Interests in Property and Rents

- Fifth Circuit Now Holds Absolute Priority Rule Applicable to Individual Chapter 11 Debtors

- Third Circuit Predicts Pennsylvania Supreme Court Would Permit Punitive Damages Under Fraudulent Transfer Act

- Court Clarifies Burdens of Proof in Adequate Protection and Lift-Stay Motions

- Tax Refund of Bank Holding Company Sub Belongs to FDIC

- Oil and Gas Lease is Executory When No Extraction Made Pre-Petition

- Undersecured Creditor Electing 1111(b) Treatment Allowed Post-Petition Attorney Fees, But Not Interest

- North Carolina Bankruptcy Court Finds Proposed Plan Not Feasible

- Participation in Bankruptcy Case and Adversary Proceeding Constitutes Waiver of Contractual Arbitration Right

- Lease Amendments May be Severable, and Thus Subject to Assumption and Rejection

- Failure to Precisely Punctuate Debtor’s Name in UCC Filing Costs Creditor Its Liens

- Reopening a Bankruptcy Case to Enforce Anti-Assignment Clause May

- Be Within Subject Matter Jurisdiction Court Lifts Stay, Finds Creditor Objections Did Not Cause Debtor to Miss Confirmation Deadline

- $14 Million Oversecurity Overcomes Plan Risks, Cram-Down Plan Approved

- Cross-Border Comparisons: Piercing the Corporate Veil

- Counsel’s Corner: News From Reed Smith

- Excerpt from: Consequences of the Failure of a Secured Creditor to File a Timely Proof of Claim:

Most of us are familiar with the concept that liens generally pass through a bankruptcy. But what happens to the secured creditor’s claim if the creditor fails to file a proof of claim on or before the bar date? Two recent cases give us some guidance. In In re Shelton, No. 12-3555 (8th Cir. Nov. 4, 2013), the Eighth Circuit held that a late claim can be disallowed without extinguishing the underlying lien. So, an action in personam is extinguished but an action in rem remains. But what does that mean from a plan confirmation standpoint? According to the court in In re Batista-Sanechez, No. 12-48247 (Bankr. N.D. Ill. Oct. 25, 2013), that means that the secured creditor loses the right to vote on the debtor’s plan and to a distribution. Of course, since the lien claim survives that creates complications for the debtor in getting a plan confirmed. The court said that the lien claim will have to be separately classified since the secured creditor will be deemed to reject the plan because it cannot vote. Consequently, the debtor must satisfy the cramdown provisions to confirm the plan. Hopefully, we will get more clarity on this puzzling issue soon.

Please see full newsletter below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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